Subscription Services: Convenience or Consumer Trap

Every January, countless individuals flock to gyms, buying or renewing gym memberships as part of their New Year's resolution. Each year presents an opportunity to commit to living a healthy lifestyle, but we all know how the story ends for the majority of those individuals. For many, enthusiasm fades, and what seemed like a smart financial decision turns into another recurring charge, quietly draining their bank accounts. This pattern is not unique to gyms; across numerous industries, subscription models have gained popularity, allowing firms to capitalise on convenience. The question we all should be asking is: Is the subscription model, which continues to grow in popularity, designed for customer benefit, or is it a consumer trap aimed at maximising revenues?

The truth is that subscription models are not a modern invention. In the UK, it originated in the late 19th century when individuals subscribed to magazines and even deliveries from milkmen. However, the transformation of the subscription model spearheaded by firms like Netflix has led to its exploding popularity. In 2007, Netflix launched the first-ever video-on-demand streaming service, which revolutionised the idea of subscriptions in the TV industry. This led to the creation of what seems to be too many other similar streaming services, such as Disney+, Hulu, and Paramount. The rise in the popularity of the subscription model has made its way across many industries. For example, it has led to the rise of SaaS(Software as a Service), where firms like Adobe offer subscription-based access to their creator tools instead of selling individual software packages.

So why do consumers give away ownership of products for temporary access? Well, the answer from the consumer perspective lies in convenience and low initial costs. Before the likes of Spotify, in order to buy products you liked, in this case music, consumers had to pay for separate CDs, which did not seem as much of a hassle. However, if you are presented with the opportunity to access all your favourite music plus to discover new music, by just making one transaction (additional transactions are automated), it may seem absurd to continue to pay for separate CDs. Furthermore, the subscription model provides the convenience of cancelling when you want. It may be cheaper for consumers to subscribe to a product for a low initial cost and cancel when they have finished using it, than to purchase a product which they may only use for a few months or maybe even weeks.

On the other hand, the benefits of the subscription model for firms are numerous. First of all, subscriptions give firms the ability to predict revenue. Unlike selling one-off products or services, where businesses may experience changes in demand more frequently, subscriptions provide recurring revenue streams which improve financial stability. Furthermore, firms can analyse subscription patterns and usage to refine subscriptions to boost revenues. Another advantage for firms is long-term customer retention. Subscriptions offer a steady stream of products or services, which creates consumer trust and brand loyalty, therefore increasing customer retention. As a result, individuals or firms who are subscribed to a product or service are less likely to switch to a different supplier. Finally, subscription models allow firms to develop an efficient pricing strategy designed to maximise profits. Every rational firm would want to charge the consumer the maximum price they are willing to pay; however, there are difficulties in differentiating between consumers or ethical considerations concerning charging consumers different prices for the same product. For example, firms do not have access to consumers financial data such as income which is a key factor to determine how much consumers are willing to play and when firms do access consumer data e.g. when Amazon in the early 2000s used cookies to track consumer data allowing them to charge different prices to certain consumers, they receive a lot of backlash from the public as this practice is considered unethical. However, firms could offer different subscription types, “silver”, “gold” and “premium” in order to differentiate between consumers and therefore maximise profits. This allows firms to charge high prices to consumers who are willing to pay more(for additional features) whilst retaining consumers who may not be willing to pay such high prices.

Whilst subscriptions may seem like a brilliant alternative to one-off purchases due to the reasons listed above, it can be detrimental to individuals’ finances and a “trap” for consumers. However, this is sometimes self-inflicted. One of the most common examples of this is forgetting about subscriptions. Research by Citizens Advice in March 2024 showed that customers had lost £688 million due to unused/forgotten subscriptions. Individuals may forget to unsubscribe from subscriptions when they do not need them, which drains their bank accounts. In contrast, firms may make subscription models hard to cancel or may leave out important information concerning cancellation from their main pages in order to extort as much money from consumers as possible. Furthermore, consumers are often misled into signing up for long-term subscriptions, which are often disguised by free trials, reduced rate trials or sample goods, which may lead to recurring payments which individuals are unaware of.

This article is not meant to discourage all subscriptions: I do not expect you to unsubscribe from Spotify or refuse to pay for BMW’s monthly seat warmer subscription (yes, this is really a thing). However, as subscriptions become the norm, consumers must stay aware of hidden costs and risks. Most importantly for the future entrepreneurs reading this article, the subscription model, for all the reasons discussed above, may be the best way to boost profits.